Recent debate at the state and national level has focused on whether to enact a climate policy to control greenhouse gas emissions such as carbon dioxide. The fact is, however, that we already have policies that affect such emissions, whether we like it or not. Such policies can be coordinated and rational, or they can be piecemeal, inconsistent, and counter-productive. Almost any policy designed to improve energy security, for example, would likely affect oil prices and energy efficiency, just as any policy to encourage alternative fuels would also affect energy security, electricity prices, consumer welfare, and health! Here is a guide for thinking about how some of these policies work, and which combinations might work better than others.

The most obvious existing policy that affects carbon dioxide emissions is the gasoline tax that applies both at state and federal levels. If that tax encourages less driving and more fuel-efficient cars, then it also impacts urban smog and global warming as well as protecting us from the whims of oil-rich nations with unstable governments. In fact, with respect to the price at the pump, a tax on emissions would look a lot like a tax on gasoline, and vice versa. Averaged over all state and federal taxes, the U.S. gasoline tax is about $0.39 per gallon, far less than around the rest of the world. Most countries in the OECD have a tax over $2/gallon.

For the most part, the U.S. has chosen to avoid tax approaches to energy and environmental policy and instead uses various mandates, standards, and subsidies. Cars sold in the U.S. are required to meet emission-per-mile standards for most local and regional pollutants like fine particles, sulfur dioxide (SO2), nitrous oxides (NOX), and volatile organic compounds (VOC) that contribute to ozone smog. Those rules make cars more expensive but have successfully cleaned the air in major cities and around the country. They also have the side effect of reducing greenhouse gases. Another mandate is the “Corporate Average Fuel Economy” (CAFE) standards that require each auto manufacturing company to meet a minimum for the average miles-per-gallon of their fleet of cars sold each year. For each big gas-guzzler they sell, the company needs to sell more small fuel-efficient cars to bring the average back down. To meet this standard, every car company must raise the price of their gas guzzlers (to sell fewer of them) and reduce the price of their small fuel-efficient cars (to sell more of them). The effect is the same as having a tax on big cars and subsidy on small cars.

These energy and environmental policies are also intricately related to other tax policies, as well as government spending! For any chosen size of government and overall tax bite, any dollar not collected in gasoline tax is another dollar that must instead be collected from payroll taxes, income taxes, corporate profits tax, or state and local sales tax. When looked at through that lens, gasoline taxes may not be that bad – or at least not as bad as some of those other taxes we must pay instead.

Every state and local government is also worried about the pricing of electricity by huge electric companies that might naturally have monopoly power over their customers. Production efficiency requires a large plant, so a small remote town might be served only by one power company (with no competition from neighbors far away, since too much power is lost during transmission). So the public utility wants to regulate electricity prices, perhaps with block pricing that helps ensure adequate provision to low-income families. Yet the pricing of electricity inevitably affects electricity use, which affects coal use, urban smog, and greenhouse gas emissions. These policies are intricately related.

And these policies are related to government spending, since they affect car and gasoline purchases and therefore required spending on roads and highways as well as train tracks and mass transit in cities. These environmental and energy policies affect human health, and therefore health spending by government – as necessary to pay for additional illness caused by emissions from cars, power plants, and heat from burning fossil fuel.

We have no way to avoid these inter-connections. You are a consumer who wants lower gas taxes and electricity prices, but you also own part of the power company and auto manufacturers through your mutual fund or pension plan. You pay other taxes on income and purchases, and you breathe the air, so you are affected by emissions and need health care. We might as well think holistically and act for the good of everybody, because we are everybody!

My own research area is environmental and natural resource economics, which others often call “sustainability”. That’s actually embarrassing, because I don’t know what it means. For a renewable resource like timber, it seems pretty easy: you just plant trees, let them grow, cut them down, and then plant trees again. For a nonrenewable resource like oil, it’s impossible: once a barrel of oil is consumed, it’s gone forever. The only way to make oil “sustainable” is not to use it, which does not make any sense, because oil has no value at all if it can’t be used.

So, sustainability is either obvious or impossible. The concept seems to be of no use whatever. So I turn to people smarter than me, to get some answers. By “smarter than me”, in this case, I mean (1.) Nobel-Prize winning economist Robert Solow, and (2.) whoever writes for Wikipedia.

Way back in 1991, Robert Solow wrote “Sustainability: An Economist’s Perspective”, in which he says: “It is very hard to be against sustainability. In fact, the less you know about it, the better it sounds.” He says he has seen various definitions, but they all turn out to be vague. So his essay is an attempt to make it more precise. “Pretty clearly the notion of sustainability is about … a moral obligation that we are supposed to have for future generations.” But you can’t be morally obligated to do something that is not feasible! He notes UNESCO’s definition: “… every generation should leave water, air, and soil resources as pure and unpolluted as when it came on earth.” But taken literally, that injunction “would mean to make no use of mineral resources; it would mean to do no permanent construction, … build no roads, build no dams, build no piers.” That is neither feasible nor desirable!

Instead, he suggests that sustainability might be both feasible and desirable if it is defined as “an obligation to conduct ourselves so that we leave to the future the option or the capacity to be as well off as we are.” In the final analysis, what that means is that we don’t necessarily have to leave all the oil in the ground, if we leave something else of equal or greater value, some other investment that can be used by future generations to produce and consume as we do, and which they can leave to other generations after them. It is a holistic concept, both simple and operational. We only need to add the value of all assets, subtract all liabilities, and make sure that the net wealth we bequeath is not less than we inherited.

We can use oil, but we should not simultaneously be running huge government budget deficits that reduce the net wealth left to our children and their children. The measure of “net wealth” should include the value of ecosystems, fresh water supplies, biodiversity, and oil, as well as productive farmland, infrastructure, machinery, and other productive assets. All those values are extremely difficult to measure, but at least the concept is clear.

Has that message been adopted since 1991? It certainly does not seem to be part of the thinking of the U.S. Congress and the rest of our political system. What are they using for guidance?

Wikipedia says “Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of responsibility, which has environmental, economic, and social dimensions, and encompasses the concept of stewardship, the responsible management of resource use.” Okay, well, that’s still pretty vague, by Solow’s standards. Let’s see if they make it more specific: “In ecology, sustainability describes how biological systems remain diverse and productive over time, a necessary precondition for the well-being of humans and other organisms. Long-lived and healthy wetlands and forests are examples of sustainable biological systems.”

I’m sorry, that kind of specificity does not make it more operational. They haven’t read Solow. In fact, the whole entry seems to read like it is intended to maximize the number of times it can link to other Wikipedia entries!

Actually, the only phrase in the whole entry that really struck me was “more sustainably.” Now, I REALLY do not know that THAT means. Our current trajectory is either sustainable, or it’s not! If future generations can live forever, how can they live longer than that? And if not, well, …

What is that, a gastrointestinal disorder? No, it’s the title of one of my recent research papers (joint with Dan Karney and Kathy Baylis) about unilateral efforts to reduce emissions of greenhouse gases (GHG). When worldwide agreement is not possible, then the question is whether GHG abatement policy might be implemented by only one country, or bloc of countries (or region or sector). The fear of any one country or bloc is that they would only raise their own cost of production, make themselves less competitive, and lose business to firms in other countries that may increase production and emissions. When only one country limits their emissions, any positive effect on emissions elsewhere is called “leakage”.

In efforts to “abate” or to reduce GHG emissions, the fear of lost business has pretty much deterred any attempt at unilateral climate policy. That positive leakage might be called a “terms of trade effect” (TTE), because unilateral policy raises the price of exports and reduces the price of imports. But our recent research paper points out a major effect that could offset part of that positive leakage. The “negative leakage” term in the equation might be called an “abatement resource effect” (ARE). That is, one additional thing happening is that the domestic firms face higher costs of their emissions, and so they want to substitute away from GHG emissions and instead use other resources for abatement – such as windmills, solar cells, energy efficient machinery, hybrids, electric cars, and even “carbon capture and sequestration” (CCS). Thus they have at least SOME incentive to draw resources AWAY from other sectors or other countries. If that effect is large, the result might shrink those other sectors’ operations overall, and thus possibly SHRINK emissions elsewhere.

I don’t mean to oversell this idea, because it probably does not completely offset the usual positive “terms of trade effect”. But in some circumstances it COULD be large, and it COULD result in net negative leakage. The best example is probably to think about a tax or permit price for carbon emissions only in the electricity generating sector, within one country. For simplicity, suppose there’s no trade with any other countries, so the only choice for consumers in this country is how much to spend on “electricity” and how much to spend on “all other goods”. Demand for electricity is usually thought to be inelastic, which means consumers buy almost the same amount even as the price rises. If firms need to produce almost as much electricity, while substantially reducing their GHG emissions, they must invest a lot of labor AND capital into windmills, solar panels, and CCS. With any given total number of workers and investment dollars in the economy, then fewer resources are used to produce “all other goods”.

The ability of consumers to substitute between the two goods (electricity vs “all other”) is called the “elasticity of substitution in utility.” The ability of firms to substitute between GHG emissions and those OTHER inputs is called the “elasticity of substitution in production”. If the former is bigger than the latter, then net leakage is positive. If the latter is bigger than the former, then net leakage can be negative.

Okay, too technical. But the point is that other researchers have missed this “abatement resource effect” and overstated the likely positive effect on leakage. And that omission has led to overstated fears about the bad effects of unilateral carbon policy. What we show is that those fears are overstated, in some cases, where leakage may not be that bad. With some concentration on those favorable cases, one country might be able to undertake some good for the world without fear that they just lose business to other sectors.

Politicians like to say they want the U.S. to produce at least as much energy as it consumes – “energy independence”. And they certainly want to reassure consumers that they are doing something about the high price of gasoline. But the two goals are inconsistent. You can’t have both. Indeed, the current high price of oil is exactly what is now REDUCING our dependence on foreign oil!

We all know the price of gasoline has been increasing lately, now well over $4 per gallon in some locations. Five-dollar gas is predicted by Summer. In addition, the New York Times just reported that our dependence on foreign oil is falling. “In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005.” The article points out that this strong new trend is based BOTH on the increase of U.S. production of oil AND on the decreased U.S. consumption of it. And both of those factors are based on the recent increases in oil and gasoline prices. Those higher prices are enough to induce producers to revisit old oil wells and to use new more-expensive technology to extract more oil from those same wells. The higher prices also are enough to induce consumers to conserve. Purchases of large cars and SUVs are down. Many people are driving less, even in their existing cars. A different article on the same day’s New York Times, on the same front page, also reports that “many young consumers today just do not care that much about cars.”

Decreased dependence on foreign oil does sound like good news. Actually, it is good for a number of reasons. (1) It is good for business in oil-producing states, helping raise them out of the current economic slow-growth period. (2) It is good for national energy security, not to have to depend on unstable governments around the rest of the world. (3) It reduces the overall U.S. trade deficit, of which the net import of oil was a big component. And (4) the reduced consumption of gasoline is good for the environment.

On the other hand, the increased U.S. production of oil is not good for the environment, as discussed in the same newspaper article just mentioned. As an aside, I would prefer to do more to decrease U.S. consumption of oil – not only from increased fuel efficiency but also by the use of alternative non-fossil fuels – and perhaps less from increased U.S. production of oil from dirty sources such as shale or tar sands. But that’s not the point for the moment.

The point for the moment is just that maybe the higher price of gasoline is a GOOD thing! We can’t take even small steps toward decreasing U.S. dependence on foreign oil UNLESS oil and gas prices rise. Any politician who tells you otherwise is pandering for your vote. It is the high price of oil that is both increasing U.S. production and decreasing U.S. Consumption.

With crude oil prices hovering near $100 per barrel, the issue of energy independence is sure to be a frequent topic in the upcoming presidential election. Don Fullerton, a finance professor and energy policy expert at Illinois, spoke with News Bureau Business and Law editor Phil Ciciora about whether the goal of energy independence is a viable one or just another pipe dream.

Is energy independence a realistic goal for the U.S.?

It seems like it’s mostly senators from oil-rich states who want to talk about oil and energy independence, because they want subsidies for the oil industry. So it’s really only for political reasons that energy independence has been hyped as an important or worthwhile goal.

If we really are concerned about reducing our dependence on foreign oil, then the implication is to tax oil, not to subsidize it! A tax on oil would discourage its use, which would have three good effects. First, it would discourage imports. Second, it would reduce drilling in the U.S., and thus help keep more oil in the ground for future contingencies. Third, it would encourage the development of other energy technologies such as biofuel, solar power, wind power and better battery technology. Those other technologies are the only realistic route to true energy independence.

Plus, there’s absolutely no way we’re going to achieve energy independence through oil because we’ve basically used up most of our oil. For all practical purposes, we don’t have much more oil. That’s why we either have to rely on other countries or switch to new technologies.

An attempt to achieve energy independence would also be a bad move for energy security, because it just says, “Let’s drain America first.” If so, we’ll be in an even worse situation later. Whatever we still have in reserve should be left there for its option value. If we did have another serious war where we really needed oil that we couldn’t import, those reserves might be good to have.

Do the new sources of domestic energy in the Dakotas and the Gulf of Mexico hold much promise for solving our energy problems?

Sure, there are some new sources of energy in the U.S. – really, natural gas and shale oil – but however much we have won’t bring us any closer to energy independence. Even if we do discover a few new fields of crude oil, it’s not going to make much of a difference.

As the price of crude rises even higher, the oil companies can go back to old and existing fields and drill a little deeper. That extraction is expensive, but it’s worthwhile if the price of oil is back near $100 per barrel. It wasn’t worthwhile earlier because the extra drilling cost was more than the oil was worth. But now that the price of crude is high enough, they can make money if they drill deeper on these old wells.

What happens to energy prices if the European economy continues to sputter?

If Europe experienced, say, a 10- to 20-percent drop in gross national product, then you might actually notice a dip in the price of oil in the U.S. But economic growth in the U.S. would also slow. So just because the price of oil might fall a little bit doesn’t make their troubles good for us, since we would be affected, too. We certainly don’t want to hope for a recession in Europe to make oil cheaper. First of all, the price wouldn’t fall that much. Second, there would be a whole host of negative implications for the U.S.

What (if anything) will bring the price of oil down again?

The only ways to get a significant change in the price of oil would be through a major recession, a major technological breakthrough, or huge policy changes. If the whole world got together and agreed to a new, stringent version of the Kyoto Protocol to reduce carbon emissions, that would have an impact. If the whole world were to reduce the burning of fossil fuels by 20 percent – that would also have an effect. But we don’t want another recession, nor will all nations agree to such a treaty.

Just a couple days ago, the Wall Street Journal reported that “U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.” Taken literally, this fact is strictly “correct”, but it is misleading. It is therefore very poor reporting. The authors either don’t understand the words they use, or they are deliberately trying to mislead readers.

The reason it is misleading is because the article implies the U.S. is headed toward “energy independence”, and that implication is wrong. It goes on to say: “As recently as 2005, the U.S. imported nearly 900 million barrels more of petroleum products than it exported. Since then the deficit has been steadily shrinking until finally disappearing last fall, and analysts say the country will not lose its ‘net exporter’ tag anytime soon.” That statement and several expert quotes in the article clearly imply the U.S. is headed toward “energy independence”.

Strictly speaking, the WSJ is correct that the U.S. exports more “petroleum products” than it imports, … but “petroleum products” do not include crude oil!! “Petroleum products” include only refined products like gasoline, diesel fuel, or jet fuel. The implication is only that the U.S. has a large refinery capacity!

The U.S. is a huge net importer of crude oil, and a huge net importer of all “crude oil and petroleum products” taken together, as you can see from the chart below (provided by the U.S. Energy Information Administration). In other words, we import boatloads of crude oil, we refine it, and then we export slightly more refined petroleum products than we import of refined petroleum products. Big deal.

If the WSJ reporters knew what they were talking about, or if they were not trying to mislead readers, then they should have just stated that the U.S. is a huge net importer of all “crude oil and petroleum products” taken together. They didn’t. That is why I conclude they do not understand the point, or that they are trying to misrepresent it. Neither conclusion is good for the Wall Street Journal.

They are simply wrong when they say: “The reversal raises the prospect of the U.S. becoming a major provider of various types of energy to the rest of the world, a status that was once virtually unthinkable.” Just look at the figure!

My green choice is to get about 12 miles to the gallon. Here is why it’s so green.

Some people think it’s obvious that I ought to buy a hybrid or other fuel-efficient vehicle. But that’s just wrong. Certainly some drivers should have a hybrid car to reduce emissions and energy use, namely somebody like my brother who has an hour commute each day, driving 20,000 or more miles per year. But not everybody. Take for example a person like me who lives near work, rides a bicycle, and doesn’t like spending hours in the car – even for a road trip to the Grand Canyon or Yosemite. I use the car once a week for the grocery store, or a restaurant, driving less than 5,000 miles per year.

Let’s suppose a hybrid gets 50 miles per gallon, so my 5,000 miles per year would cost about 100 gallons ($300 per year). The standard non-hybrid gets 25 miles per gallon, which would cost twice as much ($600 per year). I’d save $300 per year in the hybrid. But that doesn’t mean I should buy a hybrid. A new hybrid like a Toyota Prius costs about $6,000 extra to get that great fuel-efficiency (about $26,000 instead of $20,000). In other words, it would take twenty years for my $300-per-year savings to make up for the extra $6,000. It’s not worthwhile for me. If my brother drives four times as much, however, he could break even in just five years.

So far, that means I should not buy a hybrid. Does that mean I buy the normal new car with 25 mpg for $20,000? No! I should buy a beaten old 8-cylinder Bonneville, which looks like a tank and gets only half the mileage! That Bonneville may be headed for the junk heap, so it’s certainly cheaper, even if I have to pay more for gas.

But even ignoring the price of the Bonneville, I claim that the fuel-use of the Bonneville is less than the fuel use of the normal new car! Why? Consider the emissions from fuel used in production. The fuel used to make the Bonneville back in 1980 is a “sunk cost”, a done deal that does not change whether that car gets junked now or later. In other words, keeping that Bonneville off the junk heap requires no extra fuel and emissions to produce it. But buying a new car does involve more fuel and emissions just to produce it. Think about all the emissions from the steel mill, the tire factory, the glass furnace, and the electric generating plant that provides power for the tools and machinery to make the new car.

In other words, I can reduce total fuel use and emissions much more if I purchase the 1980 Bonneville and drive it 5,000 miles per year, than if I buy a new car with twice the mpg. Now all I need is a bumper sticker for my 1980 Bonneville to say how green I really am!

If one town’s water pollution flows into another town, the two towns can negotiate a solution with no need for the state to intervene. But if all towns are polluting all neighboring towns, the lines of communication are too complex to negotiate – requiring the state to pass a law to solve the problem.

If one state’s water pollution flows into another state, the two states can negotiate a solution with no need for Federal intervention. But if all states are polluting all neighboring states, the lines of communication are too complex to negotiate – and it takes a national government to solve the problem.

In other words, those problems have solutions. If one nation’s water pollution flows into another nation, then (potentially, at least) the two nations can negotiate a solution with no need for a global government to intervene. But if all nations are polluting all neighboring nations, the lines of communication are too complex to negotiate – and no global government exists to solve the problem.

I’m currently pessimistic about two of the worst problems the world has faced: global climate change, and global financial contagion. Both are “externalities” in the classic sense. Each nation’s greenhouse gas emissions pollute the whole world, and the only really effective solution is a worldwide global agreement to reduce emissions. In fact, we don’t really “need” all nations to reduce emissions; all we really need is an agreement among all nations saying that if SOME countries reduce emissions then the other countries won’t increase emissions to steal their business. But the lines of communication are too complex to negotiate – and no global government exists to solve the problem.

Environmental policy is my usual bailiwick. At the moment, however, I’m even more worried about global financial contagion. It seems that one small country can have lax financial regulations that allow banks or investment companies to take on too much risk. Or a small country can overspend, taking on too much debt. In the olden days, that country could go down in flames, with no big problem for the rest of the world. With tremendously increased globalization, however, all financial markets are highly integrated. One country’s borrowing may come from any or all other countries of the world, and one nation’s problem become the world’s problem. If banks in other countries loan to that small country, then a financial crisis in that small country may create fear about the financial well-being of the banks that lent to them, causing a run on the banks in all those other countries. Moreover, globalization means much more trade in commodities. If one small country faces severe financial difficulties and must cut back all spending, that reduces aggregate demand worldwide, and can spread a recession worldwide.

A strong global government could rein in the poorly managed countries by requiring larger capital requirements, careful financial scrutiny, and only tax-financed spending. But we don’t have any such global government. As a result, even a small country like Greece can over-spend for years without oversight. The situation in Greece may be made worse when banks in other countries raise the rate at which Greece can turn over its debt and borrow again, making the financial situation in Greece even worse.

The problem may be caused by Greece or not. Regardless of “fault”, if Greece any small country were to go into default in years past, then the cost would be primarily on that small country. Now Greece could go bankrupt and impose horrible costs on the entire World?!?

Researchers at the University of Illinois have discovered new environmental damages from the burning of fossil fuel with resulting emissions of carbon dioxide (CO2) and other Greenhouse Gases (GHG). In particular, when these anthropogenic emissions accumulate in the atmosphere and react with sunlight, they may cause climatologists to become hotter and hotter. So far, this effect has only been observed experimentally in the laboratory, but these experiments confirm the theory among atmospheric chemists that continuation of such emissions for several decades is bound to result not only in global warming of these climatologists and other environmentalists, but also extreme behavioral events similar to hurricanes, floods, and droughts.

The next key step of this research program, at the University, is to increase data collection quickly, in order to try to ascertain whether the recent aberrations in climatologists’ behavior is within the normal statistical variations or may in fact already by caused by the existing increases in atmospheric levels of greenhouse gases. The stronger hypothesis, yet to be tested, is that the increased concentrations of these gasses in the atmosphere is not just predicted globally to cause agitation and warming of these environmental scientists, but that it is already having such effects. Already, certain climatologists have experienced high blood pressure, increased internal temperatures above 98.6 degrees Fahrenheit, and occasional apoplectic seizures. These extreme behavioral events could be occurring naturally, however, so the hypothesis is not yet proven that these events can be attributed to anthropogenic greenhouse gas concentrations in the atmosphere. More research is required, and researchers at the University of Illinois are applying to the National Science Foundation for that research funding, which may require millions of dollars.

In my last two blogs, I wrote about ways to meet the Illinois state revenue needs, ways that might work better than the increase in the income tax. This blog continues the list of possible “green taxes”. In general, a green tax applies either directly on pollution emissions or on goods whose use causes pollution. For raising a given amount of revenue, the basic argument for green taxes can be summarized by the adage: “tax waste, not work”. That is, a tax on pollution might have good effects on the environment, because it discourages pollution. In contrast, an income tax discourages earning income.

In early January 2011, the State of Illinois enacted legislation to raise the personal income tax rate from 3% to 5% and to increase the corporate income rate from 4.8% to 7%. Along with a cap on spending growth, these tax increases reduce the state’s projected budget deficit in 2011 by $3.8 billion (from $10.9 to $7.1 billion). The governor justified the tax increases on the grounds that the State’s “fiscal house was burning” (Chicago Tribune, January 12, 2011). In my piece with Dan Karney for a recent IGPA Forum, we don’t debate what caused the fiscal crisis in Illinois, nor argue the merits of cutting spending versus raising revenue. Instead, we just take it as given that politicians decided to raise revenue as part of the solution to the State’s deficit. Then we analyze the use of a few green taxes as alternative ways to raise revenue.

While many green taxes are possible, we focus on four examples that have the potential to raise large amounts of revenue: carbon pricing, gasoline taxes, trucking tolls, and garbage fees. Indeed, as we show, a reasonable set of tax rates on these four items can generate as much revenue as the income tax increase. We apply each hypothetical green tax directly to historical quantities of emissions (or polluting products) in order to obtain an approximate level of potential revenue generation.

In a short series of blogs, one per week, we now discuss each of the four green taxes and their potential for revenue generation. In past weeks we covered Carbon Pricing and Gasoline Taxes. This week we cover Trucking Toll and Garbage Fees.

Every day hundreds of thousands of vehicles crowd Illinois’s roads and highways. Data from the Federal Highway Administration indicates that over 50,000 trucks (six tires and over) cross into Illinois from neighboring states along the interstate highway system. While these trucks bring needed goods to Illinois, they also congest the roads, degrade the road surfaces, and fill the air with soot. They also become involved in vehicle accidents that cost the lives of many in Illinois. To compensate the state, Illinois can impose a toll for long-haul trucks using Illinois’s highways. For example, a $5 per truck toll on 50,000 trucks daily would raise almost $100 million annually. (In comparison, the existing Illinois toll road system generates approximately $600 million annually.) The truck toll can be implemented using existing transponder technology deployed at weigh stations along the interstate highways. (As an aside, we note, the constitutionality of state trucking tolls is not clear, because the federal government determines the rules of interstate commerce; however, major portions of the existing interstate highway system are subject to tolls, including the heavily travelled I-95 corridor in Delaware. )

Next, residents of Illinois generate approximately 19 million tons of garbage per year (or more than one ton per person per year), and 60 percent of that waste ends up in landfills. Currently, large municipal waste landfill operators currently pay state fees that total $2.22 per ton of solid waste dumped. But few municipalities in Illinois charge fees designed to discourage the creation of waste by residents (Don Fullerton and Sarah M. Miller, 2010, “Waste and Recycling in Illinois,” Illinois Report 2010, pp.70-80).

However, empirical evidence shows that taxing garbage at the residential level does reduce garbage production (Don Fullerton and Thomas C. Kinnaman, 1996, “Household Responses to Pricing Garbage by the Bag,” American Economic Review, 86, pp. 971-84). Yet the exact garbage taxation mechanism varies by program. For instance, a fee can be levied on garbage bags themselves or on the containers that hold the garbage bags. Regardless, a tax rate equivalent to one penny per pound of garbage would generate almost $240 million in revenue per year, or 6.3% of the expected revenue from the income tax increase.

Finally, consider a Portfolio Approach. Remember, at issue here is not whether to raise taxes. We presume the State has decided to raise taxes by $3.8 billion (as done already through the income tax increase). Here, we merely explore alternative ways to raise revenue other than through the income tax.

Anyway, instead of implementing only one of the green taxes describe above, Illinois could choose to implement several green taxes simultaneously. This portfolio approach would keep rates low for each individual green tax, but still generate large amounts of total revenue that can add up to a large share of the total expected revenue from the recent income tax hike. According to the numbers in all three blogs, one simple and moderate plan would combine the following green taxes and pay for more than half of the needed revenue: A carbon tax of $10/ton would collect $1 billion (raising electricity prices by about 7.5%), a gas tax increase of 14 cents per gallon would collect $0.7 billion (raising gas prices by about 4.4%), a trucking toll of $5 would collect $100 million, and a garbage fee of one penny per pound would collect $240 million. Then the recent income tax increase could be cut by more than half.